Analyst: The sell-off driven by gold may have a "contagious" effect, spreading to other markets and assets. This phenomenon suggests that a decline in gold prices could trigger a broader sell-off among investors, potentially leading to increased volatility across financial markets. Understanding this dynamic is crucial for investors and policymakers to anticipate and manage potential ripple effects resulting from shifts in gold valuations.

Deep Tide TechFlow News, February 06, Analyst Jeremy Boulton stated that the sudden drop in gold prices and its rapid spread to other metals could trigger a chain reaction, prompting investors to take profits or even sell other assets with solid fundamentals to cover losses. Currently, there is a large amount of unrealized gains waiting to be realized in the market. Aside from AI-related stocks, the overall stock market still appears strong; in the currency market, investors who invested in high-risk, high-reward currencies during the past year’s carry trade boom have also reaped substantial profits. Although these bets carry higher risks, their returns are extremely lucrative, and the same applies to investments in the stock market and the euro.

During the trade war, the euro appreciated significantly, even reinforcing its market image as being “safer than global reserve currencies.” When gold prices fell, the EUR/USD exchange rate also declined, prompting traders to take profits. Although the crowded long positions in EUR/USD are less than those in gold, signs of overbought conditions have appeared during the break above 1.20. Data from CME shows that the $20 billion position betting on the euro’s rise has surpassed that of any other currency pair. As risk aversion sentiment heats up, the previously sold-off US dollar is being bought back, providing traders with reasons to realize profits. (Jin10)